24.11.06

Markets rocked by sharp slide in dollar

FT.com / MARKETS / Currencies - Markets rocked by sharp slide in dollar:

The dollar has now fallen this year by more than 10 per cent against the euro and 12 per cent against sterling. Some economists suggest the greenback has further to slide given a weak economic outlook in the US, and the prospect of interest rate cuts there next year.

Steve Saywell, currencies analyst at Citigroup, said: “While the economic data remain soft, the dollar will continue to fall.”

The gaping US trade deficit, the near certainty of a December rise in eurozone interest rates, rising expectations of a cut in US rates in the spring and wariness about borrowing in yen to finance investments in the US all continued to weigh on the dollar, analysts said.

These concerns were heightened by comments from Wu Xiaoling, deputy governor of the People’s Bank of China, indicating her unease at the rapid build-up of $1,000bn of reserves in China. She said Asian foreign exchange reserves were at risk from the dollar’s fall, although she stopped short of indicating that China was about to stop adding to its pile of reserves.

“The dollar is coming under real pressure and this looks like the beginning of a sustained move,” said Ian Stannard, strategist at BNP Paribas.

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